REG - Calnex Solutions PLC - Interim Results
21/11/2023 07:00
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RNS Number : 0561U Calnex Solutions PLC 21 November 2023
21 November 2023
Calnex Solutions plc
("Calnex", the "Company" or the "Group")
Interim Results
Calnex Solutions plc (AIM: CLX), a leading provider of test and measurement
solutions for the global telecommunications and cloud computing markets,
announces its unaudited results for the six months ended 30 September 2023
("H1 FY24" or "the Period").
Financial Highlights
· Performance impacted by the wider economic environment and resulting
deferral of investment in telecommunications market.
· Revenue decline of 38% to £7.8m (H1 FY23: £12.7m).
· Gross margin maintained at 74%, broadly in line with the prior period
(H1 FY23: 76%).
· Cost controls implemented, while maintaining key product development
and customer engagement to support future growth.
· Underlying EBITDA(1) loss of £0.4m (H1 FY23: profit of £3.5m).
· Loss before tax of £0.6m (H1 FY23: profit of £3.1m).
· Basic EPS loss (pence) of (0.42)p (H1 FY23: 2.78p).
· Closing cash position of £13.5m (H1 FY23: £14.4m, including fixed
term deposits), enabling exploitation of growth opportunities across key
sectors. Cash levels expected to be maintained for H2.
· Interim dividend of 0.31 pence per share to be paid in December.
Operational Highlights
· Sales pipeline remains strong with customers committed to delivery of
pipeline projects once budgets are released.
· New products performing well, with first orders for SNE-X and
SNE-Ignite and NE-ONE gaining traction in new sectors, such as defence.
· Ongoing product development programme to support growth and meet the
evolving needs of customers.
Outlook
· The Board expects to close the year in line with the current market
expectations.
· Confident in a return to growth in the 12 months to March 2025
("FY25") through creation of new use cases for existing products, plus the
development of new products and expansion into growing sectors.
· Underlying market drivers, including the increase in network
complexity, the build-out of 5G and data centre investment, remain positive.
Tommy Cook, Chief Executive Officer, and founder of Calnex, said: "While the
results for the first half are disappointing, the strength of our offering,
team, and balance sheet, resulting from our consistent delivery in recent
years, means we are well positioned to weather the current conditions while
continuing to invest in our product roadmap.
"We have experienced markets such as these before and are adept at managing
the business back to growth.
"We believe the fundamental drivers that underpin the build out of the mobile
network and the expansion of data centres and cloud computing capacity have
not changed, but rather investment put on pause due to the macro-economic
climate. We will continue to focus on the deployment of our new product
programme as a means to generate additional customer demand and are confident
that Calnex will return to growth in FY25."
(1) EBITDA after charging R&D amortisation.
For more information, please contact:
Calnex Solutions plc Via Alma
Tommy Cook, Chief Executive Officer
Ashleigh Greenan, Chief Financial Officer
Cavendish Capital Markets Limited - NOMAD +44 (0)131 220 6939
Derrick Lee, Peter Lynch
Alma + 44(0) 20 3405 0213
Caroline Forde, Hannah Campbell, Joe Pederzolli
Overview of Calnex
Calnex Solutions designs, produces and markets test and measurement
instrumentation and solutions for the telecommunications and cloud computing
industries. Calnex's portfolio enables R&D, pre-deployment and in-service
testing for network technologies and networked applications, enabling its
customers to validate the performance of the critical infrastructure
associated with telecommunications and cloud computing networks and the
applications that run on it.
To date, Calnex has secured and delivered orders in 68 countries across the
world. Customers include BT, China Mobile, NTT, Ericsson, Nokia, Intel,
Qualcomm, IBM and Meta.
Founded in 2006, Calnex is headquartered in Linlithgow, Scotland, with
additional locations in Belfast, Northern Ireland, Stevenage, England and
California in the US, supported by sales teams in China and India. Calnex has
a global network of partners, providing a worldwide
distribution capability.
Operational Review
Overview of the Period
Throughout the first half of the financial year, Calnex continued to operate
in a challenging economic environment, reflecting the ongoing caution in the
wider telecommunications market. Our order inflow remained at the subdued
levels we experienced at the outset of the year. The cautiously improving
outlook reported widely across the sector earlier in H1 failed to gain the
momentum we expected and the typically strong September trading period that we
usually experience, following the seasonally quiet July and August, did not
materialise. As a result of these factors, the Group achieved HY24 revenue of
£7.8m (H1 FY23: £12.7m) and a loss before tax of £0.6m (H1 FY23: profit of
£3.1m), below the Board's expectations set at the start of the year.
While the extent of the first half decline in revenues and profits is deeply
disappointing for us all, there remain many reasons for optimism over the
longer term. We have multiple customer orders that have passed through
technical and commercial validation stages and are awaiting budget allocation.
Our strong sales pipeline provides confidence, and customers have confirmed
they remain committed to the delivery of projects once budgets are released.
Spending within the telecommunications sector is generally led by the large
infrastructure projects of the major telecommunications operators, which
filter down through the wider ecosystem. These infrastructure projects face
macro slowdowns at times, and we are currently experiencing one that is
particularly prolonged, reflecting both the high interest rate environment and
the increased geopolitical tensions, which have caused network build-out
projects to be slowed or delayed.
Due to our long history in the sector, we have experienced markets such as
these before and are adept at managing the business back to growth, delivering
historically, low-teens long-term revenue CAGR. We are confident that we can
capitalise on the opportunities available to us once market dynamics
normalise.
While we are confident that budgets will return in the telecommunications
market as the economic backdrop improves, we are not simply waiting for the
market to re-open. Our new product programme targeting both telecommunications
and non-telecommunications markets, such as cloud computing, data centres and
the defence sector, which are less affected by the macroeconomic environment,
is more important than ever, as a new product that serves evolving customer
needs provides a more compelling reason for customers to buy, even in a
downturn.
While order levels were suppressed across all product lines and regions
outside of the data centre and cloud and IT markets, we continued to secure
sales for both existing and newly released products in the Period. Highlights
include the first orders for our newly launched products, SNE-X, SNE-Ignite
and NE-ONE, which is gaining traction in new sectors, such as defence.
The business continues to be supported by a healthy balance sheet, with cash
at the end of September 2023 of £13.5 million. There was significant
investment in inventory during the Period to develop more flexibility in the
ability to respond to customer orders plus an element of inventory build-up
from material received to support previous order expectations. This cash
position enables us to continue to target growth opportunities across our key
sectors and maintain relationships with customers as they plan future
investment in their projects.
Market drivers
The underlying structural growth drivers in the telecommunications and data
centre markets continue to offer long-term growth opportunities for Calnex.
Within the telecommunications market, these include the increase in network
complexity and the build-out of the mobile infrastructure utilising 5G
technology. This will see a long-term transformation of the telecommunications
network, creating the need for test and measurement equipment to prove that
new systems operate effectively and conform to rigorous international
standards. The telecommunications market is still very much only at the start
of this build out. In a recent interview with Bloomberg, Pekka Lundmark, Chief
Executive Officer, Nokia, is quoted as saying "In Mobile Networks there is
still substantial need for operators to invest in 5G globally with only
approximately 25% of the potential mid-band 5G base stations so far deployed
outside China."
The ongoing investment into data centre capacity and efficiency to support the
growth in cloud computing and adoption of AI is also providing Calnex with new
opportunities in the areas of network time monitoring (with our recently
introduced product 'SyncSense') and data centre efficiency and effectiveness.
Product development
Innovation is the lifeblood of our business. We have consistently brought
highly engineered, high value and differentiated products to market,
stimulating customer demand and supporting our growth. Each new platform we
develop offers a large number of features and capabilities. Much of this
core capability can be used in a multitude of testing scenarios in a wide
range of markets, both within telecommunications and non-telecommunications
markets. These core capabilities are then complemented by added features
making the platform appropriate for a specific market in which we have
identified a verified opportunity.
In this way, previous R&D investment is repurposed for new growth
channels, such as the adaptation of our telecommunications network
synchronisation offering, Sentinel, for the data centre market, re-named
Sentry.
We have innovation programmes across all of our product families, adapting
them for new customer needs or markets. These include SyncSense, a new product
to target network time monitoring in data centres, and SNE-X and SNE-Ignite,
targeting high-speed, and high accuracy Network Emulation opportunities across
both telecommunications and non-telecommunications markets. We anticipate
the launch of these new products will support our growth in FY25, as well as
the demand we are seeing for the newly launched Sentry and the acquired NE-ONE
offering in defence.
Outlook
The Board expects to see a seasonal increase in H2, closing the year in line
with the current market expectations.
During H2, we will remain focused on the deployment of our existing products
as well as our new product programme that targets both the telecommunications
and non-telecommunication markets, to address unmet customer needs. We are
confident that these will enable Calnex to return to growth in FY25.
We believe the fundamental drivers that underpin the build out of the mobile
network and the expansion of the data centres and cloud computing capacity
have not changed, there is simply a pause caused by the macro-economic
climate. Within the telecommunications market, the close relationships we hold
with our customers and partners mean we are well positioned to convert the
sales pipeline to orders once spending patterns normalise.
Our healthy balance sheet will enable us to weather these uncertainties,
providing the Board with confidence in the medium- and long-term future of
Calnex and in our ability to deliver for our shareholders.
Financial Review
While the results for the period are disappointing, importantly gross margins
have remained robust and we continue to benefit from a healthy cash balance,
strong customer relationships and a high quality and productive R&D team,
providing us with confidence in a return to a stronger financial performance
in future periods.
Broadly, the wider economic concerns and reticence in the market had an impact
on revenue levels across all product lines and geographies.
Amongst our three territories, Rest of World (EMEA, India, South East Asia,
Australasia) was the least affected by the slow-down, driven by a resilient
performance in EMEA where business is derived from a wide range of sectors.
Within North Asia, China remains challenging due to the impact of US
restrictions and as a result, an increased focus is being applied to growing
business in Taiwan and Japan. The Americas region was most impacted by the
telecommunications slow down and therefore increased focus is being applied on
Hyperscalers and government opportunities where we see the best chance to
close business.
Looking at our product lines, Lab Sync (Paragon-Neo and Paragon-X) saw a
softened performance in the Period which, given their dominance in the
telecommunications market, is directly linked to the wider slowdown in the
sector. This is also the case with Sentinel, our telecommunications focused
Network Sync product. Sales of Sentry, our Network Sync product aimed at data
centres, are continuing as planned.
Our Cloud & IT (infrastructure) product, SNE, endured a challenging H1
given its exposure to the US market, but performance is expected to pick up in
H2 from the growing sales pipeline for the newly launched SNE-X &
SNE-Ignite products. Across Cloud & IT (Applications), NE-ONE, we are on
track to achieve our original FY revenue target, with the growth being driven
by channel expansion and a strong performance in defence and satellite
communications sectors.
Key performance indicators
£000 H1 FY24 H1 FY23 FY23
Unaudited Unaudited Audited
Revenue 7,847 12,728 27,449
Gross Profit 5,836 9,617 20,472
Gross Margin 74% 76% 75%
Underlying EBITDA (1) (411) 3,466 7,980
Underlying EBITDA % -5% 27% 29%
Profit before tax (599) 3,086 7,208
Profit before tax % -8% 24% 26%
Closing cash including fixed term deposits(2) 13,478 14,436 19,098
Capitalised R&D 2,554 2,247 4,523
Basic EPS (pence) (0.42) 2.78 6.75
Diluted EPS (pence) (0.42) 2.67 6.42
(1) EBITDA after charging R&D amortisation.
(2) The Group places surplus cash balances not required for working capital
into notice and fixed term deposit accounts. Under IAS 7 Statement of Cash
Flows, cash held on long-term deposits (being deposits with maturity of
greater than 95 days, and no more than twelve months) that cannot readily be
converted into cash is classified as a fixed term investment.
A reconciliation between the statutory reported income statement and the
adjusted income statement is shown in note 22 to the financial statements.
Revenue
Revenue recognised in the first half of the year was £7.8m, a 38% decline on
H1 FY23 revenue of £12.7m, driven by the subdued level of order volumes
experienced through the Period.
Gross Margin
Gross margin in the Period was 74%, in line with the FY23 margin of 75%. (H1
FY23: 76%). This gross margin is net of commissions payable to our channel
partners and can fluctuate by 1-2% through the year depending on the mix and
timing of the hardware and software bundles shipped.
The Group increased pricing in the prior period to negate inflationary direct
materials cost increases, which has contributed to the protection of the
product margins throughout the Period.
Underlying EBITDA
Underlying EBITDA is stated after charging R&D amortisation.
Underlying EBITDA was a £0.4m loss in the Period (H1 FY23: £3.5m), driven by
the reduction in revenue volumes. Underlying EBITDA margin was -5% (H1 FY23:
27%).
Administration costs excluding depreciation and amortisation were £4.5m in H1
FY23 (H1 FY22: £4.7m). The Group paused on any further recruitment at the
start of the year as a consequence of the slowdown in trading and, as a
result, excluding graduate hires, there were no new headcount increases in the
Period.
The reduced order levels have resulted in lower commission costs compared to
the prior period together with lower recruitment costs and legal fees
(non-recurring deal fees for the iTrinegy acquisition were included in
administration costs in the prior period). Staff and management profit share
accruals have also been reduced compared to the prior year. These cost
savings were offset partially by adverse foreign exchange impacts on overseas
salary costs and increased share-based payment charges.
£0.1m has been charged to the income statement in the Period to account for
the Earn-out Payment in relation to the iTrinegy acquisition, with a further
£0.1m to be charged in H2. If revenue growth targets from the NE-ONE
product line are met, the Earn-Out Payment will be paid as a combination of
cash and new shares issued in Calnex Solutions plc in early FY25.
Whilst cost controls have been implemented across all cost lines and
departments, the Group has not implemented any investment reduction programmes
as maintaining investment in product development and customer engagement at
this point is fundamental to support future growth.
Amortisation of R&D costs in H1 FY23 was £1.8m (H1 FY23: £1.6m). The
increase on the prior period is due to the impact of the 5 year amortisation
profile and growth in capital spend in prior years. Excluding graduate hires
(of which there were 5 new hires in the Period), there have been no headcount
increases in the R&D team in the Period.
Profit before tax
Loss before tax was £0.6m in the Period (H1 FY23: £3.1m profit), with the
reduction in trading volumes and predominantly fixed cost base causing a
negative operational leverage effect on profit.
Tax
The Group's loss-making position resulted in a tax credit of £0.2m for the
Period (H1 FY23: charge of £0.7m), driven predominantly by the proportion of
R&D SME enhanced tax credit relief.
The weighted average applicable tax rate for FY24 is 25% (FY23: 19%). The
difference between the applicable rate of tax and the effective rate of 37%
(H1 FY23: 21%) is largely due to the following:
· Availability of R&D SME enhanced deduction at 86% (increasing
effective rate by 24%); and
· A combination of such as prior year adjustments, timing differences,
and overseas tax (decreasing effective rate by 12%).
We expect the effective tax rate to revert back in line with the weighted
average applicable tax rate once the Group returns to profitability in future
periods.
Earnings per share
Basic earnings per share was a loss of 0.42p in the Period (H1 FY23: 2.78p)
and diluted earnings per share was also a loss of 0.42p (H1 FY23: 2.67p), with
the movement compared to the prior period attributed to reduced trading
volumes.
Cashflows
The Group experienced a cash outflow of £5.6m in the period, reflecting the
loss made in the Period and increases in working capital.
Working capital in the period increased by £3.3m (H1 FY23: £1.3m) driven
predominantly by increased levels of product to increase responsiveness to
order intake, plus inventory increases as a result of the tail end effects of
supply chain issues coupled with investment in inventory to support the
previous order expectations. The inventory will be sufficient to support the
remainder of the year and positions the company well to deliver faster
turnaround of orders to revenue in H2.
The Group paid £0.8m in tax in the period based on the profit generated in
the prior year. Given the Group's current expectations for profit for FY24,
this cash is potentially refundable in FY25 after submission of the FY24
year-end tax return.
Cash used in investing activities is principally cash spent on R&D
activities which is capitalised and amortised over five years. Investment in
R&D in the Period was £2.6m (H1 FY22: £2.5m), reflecting inflationary
salary increases and graduate headcount increases.
The Group places surplus cash balances not required for working capital into
notice and fixed term deposit accounts. Under IFRS, cash held on long-term
deposits (being deposits with maturity of greater than 95 days, and no more
than twelve months) that cannot readily be converted into cash is classified
as a fixed term investment. This is shown separately on the balance sheet and
classed as a cash outflow within investing activities in the consolidated
cashflow statement in prior periods. As at 30 September 2023, the Group held
surplus cash in notice accounts, but did not hold any on long term deposit.
Closing cash at 30 September 2023 was £13.5m (30 September 2022: £14.4m
including fixed term deposits; 31 March 2022: £19.1m including fixed term
deposits). Subject to any effects of supply chain issues, we expect this
cash balance to be maintained throughout H2.
Dividend
The Board retain full confidence in future growth and accordingly has resolved
to pay an interim dividend of 0.31 pence per ordinary share (FY23 Interim
dividend 0.31p) on 15 December 2023 to those shareholders on the register as
at 1 December 2023, the record date. The ex-dividend date is 30 November 2023.
Calnex Solutions plc
Consolidated Statement of Comprehensive Income
For the period ended 30 September 2023
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Revenue 5 7,847 12,728 27,449
Cost of sales (2,011) (3,111) (6,977)
Gross profit 5,836 9,617 20,472
Other income 111 150 751
Administrative expenses (6,705) (6,669) (13,989)
Operating (loss)/profit (758) 3,098 7,234
Presented as:
EBITDA 1,405 5,076 11,295
Depreciation and amortisation of non-R&D assets (347) (368) (746)
Amortisation of R&D asset (1,816) (1,610) (3,315)
Operating (loss)profit (758) 3,098 7,234
Finance costs 6 (11) (12) (26)
Interest received 170 - -
(Loss)/profit before taxation (599) 3,086 7,208
Taxation 7 223 (656) (1,297)
(Loss)/profit and total comprehensive income for the year (376) 2,430 5,911
Earnings per share (pence)
Basic (loss)/earnings per share 8 (0.42) 2.78 6.75
Diluted (loss)/earnings per share 8 (0.42) 2.67 6.42
Calnex Solutions plc
Consolidated statement of financial position
For the period ended 30 September 2023
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Non-current assets
Intangible assets 9 11,168 10,181 10,565
Goodwill 10,11 2,000 1,646 2,000
Plant and equipment 12 434 297 404
Right of use assets 13 409 660 533
Deferred tax asset 14 691 304 272
14,702 13,088 13,774
Current assets
Inventory 15 3,837 1,532 2,748
Trade and other receivables 16 4,676 6,035 3,130
Corporation tax receivable 42 - -
Cash and cash equivalents 17 13,478 12,936 17,583
Short term investments 17 - 1,500 1,515
22,033 22,003 24,976
Total assets 36,735 35,091 38,750
Current liabilities
Trade and other payables 18 5,515 6,059 5,988
Corporation tax payable - - 843
Lease liability payable within one year 13 271 192 260
5,786 6,251 7,091
Non-current liabilities
Trade and other payables 18 1,096 1,965 1,396
Lease liabilities payable later than one year 13 280 566 431
Deferred tax liability 14 2,663 2,253 2,457
Provisions 19 15 15 15
4,054 4,799 4,299
Total liabilities 9,840 11,050 11,390
Net assets 26,895 24,041 27,360
Equity
Share capital 109 109 109
Share premium 7,495 7,495 7,495
Share option reserve 1,327 764 873
Retained earnings 17,964 15,673 18,883
Total equity 26,895 24,041 27,360
Calnex Solutions plc
Consolidated statement of cashflows
For the period ended 30 September 2023
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Cashflow from operating activities
(Loss)/profit before tax from continuing operations (599) 3,086 7,208
Adjusted for:
Finance costs 11 12 26
Interest received (170) - (160)
Government grant income (111) (96) (201)
R&D tax credit income - - (390)
Movement in provisions - (141) -
Share based payment transactions 450 286 574
Depreciation 211 368 371
Amortisation 1,952 1,610 3,690
Movement in inventories (1,234) (569) (1,554)
Movement in obsolescence provision 145 109 (122)
Movement in trade and other receivables (1,546) (1,054) 1,619
Movement in trade and other payables (649) 239 (329)
Cash (outflow)/inflow generated from operations (1,540) 3,850 10,732
Movement in provision (overseas tax) - - (140)
Corporation and foreign tax payments (843) - (70)
Corporation tax receivable (42) - -
R&D tax credit cash refunds received - 393 589
Net cash (outflow)/inflow from operating activities (2,425) 4,243 11,111
Investing activities
Purchase of intangible assets (2,554) (2,247) (4,523)
Purchase of plant and equipment (117) (64) (181)
Purchase of subsidiary: net of cash acquired - (2,263) (2,263)
Short term investment: fixed term deposit 1,515 - (15)
Interest received 170 - 160
Net cash outflow from investing activities (986) (4,574) (6,822)
Financing activities
Payment of lease obligations (151) (111) (245)
Dividends paid (543) (490) (761)
Share options proceeds - 11 11
Government grant income - - 432
Net cash outflow from financing activities (694) (590) (563)
Net (decrease)/increase in cash and cash equivalents (4,105) (921) 3,726
Cash and cash equivalents at the beginning of the period 17,583 13,857 13,857
Cash and cash equivalents at the end of the period 13,478 12,936 17,583
Calnex Solutions plc
Consolidated statement of changes in equity
For the period ended 30 September 2023
Share Share premium Share option reserve Retained earnings Total
capital Equity
£'000 £'000 £'000 £'000 £'000
Balance as at 30 September 2022 109 7,495 764 15,673 24,041
Transactions with owner in their capacity as owners
Share options - - 109 - 109
Interim dividend - - - (271) (271)
- - 109 (271) (162)
- - - 3,481 3,481
Profit for period ended 31 March 2023
Balance as at 31 March 2023 109 7,495 873 18,883 27,360
Transactions with owner in their capacity as owners
Share options - - 454 - 454
Final dividend - - - (543) (543)
- - 454 (543) (89)
Loss for period ended 30 September 2023 - - - (376) (376)
Balance at 30 September 2023 109 7,495 1,327 17,964 26,895
Calnex Solutions plc
Notes to the interim consolidated financial statements
For the period ended 30 September 2023
1. General information
The interim consolidated financial statements cover the consolidated entity
Calnex Solutions plc and the entities it controlled at the end of, or during,
the interim period to 30 September 2023 ("the Group").
Calnex Solutions plc ("the Company") is a public limited company and is
domiciled and incorporated in Scotland.
The registered office is:
Oracle Campus
Linlithgow
West Lothian
EH49 7LR
The principal activity of the Group is the design, production and marketing of
test instrumentation and solutions for network synchronisation and network
emulation enabling its customers to validate the performance of critical
infrastructure associated with telecommunications networks, enterprise
networks and data centres.
The interim consolidated financial statements for the period ended 30
September 2023 are unaudited, and do not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. They do not therefore
include all the information and disclosures required in annual statutory
financial statements and should be read in conjunction with the Group annual
report and accounts for the year ended 31 March 2023.
The Group annual report and accounts for the year ended 31 March 2023 were
approved by the Board of Directors on 22 May 2023 and have been delivered to
the Registrar of Companies. The auditor's report on those accounts was
unqualified, did not draw attention to any matters by way of emphasis and did
not contain a statement made under Section 498(2) or (3) of the Companies Act
2006.
The interim consolidated financial statements for the period ended 30
September 2023 were approved by the Board of Directors on 20 November 2023.
2. Basis of preparation
The interim consolidated financial statements for the period ended 30
September 2023 have been prepared in accordance with IAS 34 'Interim Financial
Reporting' as issued by the International Accounting Standards Board, endorsed
by, and adopted for use in, the United Kingdom.
The accounting policies and methods of computation adopted are consistent with
those applied in the Group's consolidated financial statements for the year
ended 31 March 2023 and have been applied consistently to all periods
presented.
There have been no new standards or amendments to existing standards effective
from 1 April 2023 that are applicable to the Group or that has had any
material impact on the financial statements and related notes as at 30
September 2023.
The Directors do not anticipate that the adoption of any of the new standards
and interpretations issued by the IASB and IFRIC with an effective date for
the Group after the date of these interim financial statements will have a
material impact on the Group's interim financial statements in the period of
initial application.
3. Going concern
The interim consolidated financial statements have been prepared on the basis
that the Group will continue as a going concern.
In adopting the going concern basis, the Directors have considered the
principal risks and uncertainties of the group, which remain unchanged from
those reported in the Group annual report for the year ended 31 March 2023, a
copy of which is available on the Company's website at:
https://investors.calnexsol.com. The uncertainties arising from the
macro-economic backdrop and inflationary pressures are covered by existing
risks, and these continue to be closely monitored.
The Board has reviewed cashflow forecasts and availability of cashflow to fund
the ongoing operations of the Group. Based on this review, along with regular
oversight of the Group's risk management framework, the Board has concluded
the going concern basis to remain appropriate.
4. Operating segments
Operating segments are based on the internal reports that are reviewed and
used by the Board of Directors (who are identified as the Chief Operating
Decision Makers) in assessing performance and determining the allocation of
resources. As the Group has a central cost structure and a central pool of
assets and liabilities, the Board of Directors do not consider segmentation in
their review of costs or the balance sheet. The only operating segment
information reviewed, and therefore disclosed, are the revenues derived from
different geographies.
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Americas 1,893 4,538 9,644
North Asia 1,527 3,168 6,475
Rest of world 4,427 5,022 11,330
Total revenue 7,847 12,728 27,449
5. Revenue
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Sale of goods 5,981 11,665 24,579
Rendering of services 1,866 1,063 2,870
Total revenue 7,847 12,728 27,449
6. Finance costs
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Interest expense on lease liabilities 11 12 26
Total finance costs 11 12 26
7. Taxation
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Current taxation
UK corporation tax on profits for the period - 413 1,143
Foreign current tax expense 46 8 149
Adjustments relating to prior years (42) - (4)
Deferred taxation
Origination and reversal of temporary differences (233) 235 (46)
Adjustments relating to prior years 6 - -
Effects of changes in tax rate - - 55
Taxation charge (223) 656 1,297
(Loss)/profit before tax for the year (599) 3,086 7,208
Effective tax rate 37% 21% 18%
The weighted average applicable tax rate for the period ended 30 September
2023 is forecast at 37% (2022: 21%), being the current period tax charge as a
percentage of profit/(loss) before tax.
The current underlying corporation tax rate is 25% and the movement to the
effective tax rate of 37% has been affected by the following factors:
· UK corporation tax rate:
25%
· Timing differences/deferred tax movement/ disallowable expenses
(12%)
· Enhanced R&D
relief
24%
8. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders by the weighted average number of Ordinary Shares in
issue during the year.
Diluted earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders by the total of the weighted average number of
Ordinary Shares in issue during the year and adjusting for the dilutive
potential Ordinary Shares relating to share options.
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
(Loss)/profit after tax attributable to shareholders (376) 2,430 5,911
Weighted average number of shares used in calculation:
Basic earnings per share 87,524 87,508 87,520
Diluted earnings per share 92,430 91,493 92,070
(Loss)/earnings per share - basic (pence) (0.42) 2.78 6.75
(Loss)/earnings per share - diluted (pence) (0.42) 2.67 6.42
9. Intangible Assets
Included within intangible assets are the following significant items:
· Intellectual property representing the cost of patent
applications and on-going patent maintenance fees.
· Acquired intellectual property from business combinations.
· Capitalised development costs representing expenditure relating
to technological advancements on the core product base of the Group. These
costs meet the requirement of IAS 38 (Intangible Assets) and will be amortised
over the future commercial life of the related product. Amortisation is
charged to administrative expenses.
Intellectual Development
property Costs Total
£'000 £'000 £'000
Cost
At 1 April 2023 3,526 30,395 33,921
Additions - 2,554 2,554
Disposals - - -
At 30 September 2023 3,526 32,949 36,475
Amortisation
Balance at 1 April 2023 2,482 20,874 23,356
Charge for the period 136 1,816 1,952
Eliminated on disposal - - -
At 30 September 2023 2,618 22,690 25,308
Net book value
31 March 2023 1,044 9,522 10,565
30 September 2023 908 10,260 11,168
10. Business combinations
In the prior financial period, on 12 April 2022, Calnex Solutions plc acquired
100 per cent of the issued share capital of iTrinegy Ltd, a leading developer
of Software Defined Test Networks technology for the software application and
digital transformation testing market. This acquisition was made on a cash
free, debt free basis, for an initial cash consideration of £2.5 million,
fully funded from Group free cash. An additional £0.5 million was also paid
to the vendors in exchange for them leaving all available cash (£0.7m at
acquisition date) within the acquired business. Up to a further £1 million
consideration is potentially payable subject to the achievement of revenue
growth from the NE-ONE product line in the year ended 31 March 2024 (the
'Earn-Out Payment'). This Earn-Out Payment will be realised as a combination
of cash and new ordinary shares issued in Calnex Solutions plc. The maximum
number of new ordinary shares that may be issued as a result of the Earn-Out
Payment targets being met in full is 322,579.
As at 30 September 2022, the reported business combination financial impact
was provisional on release of the interim financials. In line with the 12
month measurement period afforded within IFRS 3 Business Combinations, the
accounting work was finalised ahead of the year end, 31 March 2023. A
reconciliation of adjustments processed following the interim reporting period
ended 30 September 2022 is detailed below:
Goodwill
£'000
Goodwill reported as at 30 September 2022 1,646
Adjustments reducing net identifiable assets of acquired entity:
Recognition of deferred tax liability arising from IP fair value adjustment 311
'Other payables' acquisition accounts finalisation adjustment 43
Total adjustments 354
Goodwill reported as at 31 March 2023 2,000
All values identified in relation to the acquisition of iTrinegy Ltd were
final as at 31 March 2023.
11. Goodwill
The goodwill arising in a business combination is allocated, at acquisition,
to the cash generating units that are expected to benefit from the business
combination. The Board considers the Group to consist of a single cash
generating unit, reflective of not only the manner in which the Board (who
operate as the Chief Operating Decision Makers) assesses and reviews
performance and resource allocation of the group, but also the centralised
cost structure and pooled assets and liabilities which are critical to revenue
generation across all platforms. The determination of a single cash generating
unit within the Group therefore reflects accurately the way the Group manages
its operations and with which goodwill would naturally be associated.
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Cost 2,000 1,646 2,000
The Group tests goodwill for impairment annually, or more frequently if there
are indications that the goodwill has been impaired. The Group has an annual
impairment testing date of 31 March. As at 30 September 2023, management has
reviewed goodwill for indicators of impairment, and has considered the Group's
trading performance, the Group's principal risks and uncertainties, and the
other assumptions utilised in the value in use calculation. Management has
performed sensitivity analyses on the key assumptions both with other
variables held constant and with the other variables simultaneously changed.
Management has concluded that there are no reasonable changes in the key
assumptions that would cause the carrying amount of goodwill to exceed the
value in use for the cash generating unit.
No evidence of impairment was found at balance sheet date.
12. Plant & equipment
Plant and
equipment
£'000
Cost
At 1 April 2023 570
Additions 117
Disposals -
At 30 September 2023 687
Amortisation
Balance at 1 April 2023 166
Charge for the period 87
Eliminated on disposal -
At 30 September 2023 253
Net book value
31 March 2023 404
30 September 2023 434
13. Leases
The Group has recognised a right-of use asset and a lease liability for the
lease of land and buildings for its head office in Linlithgow, Scotland.
The Group leases IT equipment with contract terms ranging between 1 to 2
years. The Group has recognised right-of use assets and lease liabilities
for these leases.
The Group also leases land and buildings in Belfast and one motor vehicle.
These leases are low-value, so have been expensed as incurred. The Group has
elected not to recognise right‑of‑use assets and lease liabilities for
these leases.
Information about the right of use assets and leases for which the Group is a
lessee is presented below:
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Right of use assets
NBV brought forward in the period 533 791 791
Additions to right of use assets for the period - - -
Depreciation charge for the period (124) (131) (258)
NBV carried forward for the period 409 660 533
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Lease liabilities
Balance brought forward in the period 691 857 857
Lease additions for the period - - 53
Payment of lease expense (151) (111) (245)
Interest on lease expense 11 12 26
Balance carried forward for the period 551 758 691
Represented as:
Due within 1 year 271 192 260
Due in more than 1 year 280 566 431
Total amounts due 551 758 691
14. Deferred tax
Deferred tax asset 6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Opening balance 272 304 304
Recognised in statement of comprehensive income 405 - (192)
Recognised in equity 14 - 160
Closing balance 691 304 272
Deferred tax assets arise as follows:
Unused losses 321 - -
Share based remuneration 348 265 250
Other timing differences 22 39 22
Total deferred tax asset 691 304 272
Deferred tax liability 6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Opening balance 2,457 2,017 2,017
Recognised in statement of comprehensive income 206 236 440
Closing balance 2,663 2,253 2,457
Deferred tax liabilities arise as follows:
Deferred tax on acquisition 226 19 260
Timing differences on development costs 2,333 2,151 2,108
Accelerated capital allowances 104 83 89
Total deferred tax liability 2,663 2,253 2,457
15. Inventory
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Finished goods 4,314 2,071 3,055
Provision for obsolescence (478) (539) (307)
3,837 1,532 2,748
16. Trade and other receivables
Trade receivables are consistent with trading levels across the Group and are
also affected by exchange rate fluctuations.
No interest is charged on the trade receivables.
The Group has reviewed for estimated irrecoverable amounts in accordance with
its accounting policy, and at the balance sheet date, there are no amounts
outstanding beyond agreed credit terms.
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Trade receivables 2,675 5,237 2,605
Other receivables 180 468 213
Prepayments and accrued income 1,821 330 312
4,676 6,035 3,130
The Directors consider that the carrying amount of trade and other receivables
approximates their fair value.
17. Cash and cash equivalents
Cash and cash equivalent amounts included in the Consolidated Statement of
Cashflows comprise the following:
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Cash at bank 8,222 6,370 12,439
Cash on short term deposit 5,256 6,566 5,144
Total cash and cash equivalents 13,478 12,936 17,583
Short term investment: Fixed term deposit - 1,500 1,515
Short term cash deposits of £5,255,881 are callable on a notice of 95 days.
Cash held on long-term deposits (being deposits with maturity of greater than
95 days) that cannot be readily converted into cash have been classified as
short term investments in prior periods.
The Directors consider that the carrying value of cash and cash equivalents
and short term investments approximates their fair value.
18. Trade and other payables
Trade and other payables are consistent with trading levels across the Group
but are also affected by exchange rate fluctuations. Trade payables and
accruals principally comprise amounts outstanding for trade purchases and
ongoing costs. The Group has financial risk management policies in place to
ensure all payables are paid within the agreed credit terms.
Deferred income relates to fees received for ongoing services to be recognised
over the life of the service rendered.
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Trade payables 2,038 2,204 1,770
Other taxes and social security 217 183 197
Other payables 84 76 75
Accruals 783 1,818 1.275
Deferred income 2,393 1,778 2,671
5,515 6,059 5,988
Amounts due in more than one year
Deferred income 1,096 1,748 1,166
Other payables - 217 230
1,096 1,965 1,396
Total amounts due 6,611 8,024 7,384
The Directors consider that the carrying amount of trade and other payables
approximates their fair value.
19. Provisions
Current provisions are recognised in respect of dilapidations on leased
assets. No discount is recorded on recognition of the provisions or unwound
due to the short-term nature of the expected outflow and the low value and
estimable nature of the non-current element.
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Non-current provisions
Dilapidations 15 15 15
20. Dividends paid and proposed
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Proposed but not yet recognised
Interim dividend 2024: 0.31 per share 271 - -
Declared and paid
Final dividend 2022: 0.56p per share - 490 490
Interim dividend 2023: 0.31p per share - - 271
Final dividend 2023: 0.62p per share 543 - -
An interim dividend of 0.31 pence per Ordinary Share (FY23 interim
dividend:0.31 pence per Ordinary Share) was declared by the board on 21
November 2023, and will be paid to ordinary shareholders on 15 December 2023.
The dividend is payable to all shareholders on the Register of Members at the
close of business on the 1 December 2023.
All dividends are determined and paid in Sterling.
21. Events after the reporting date
On 5 October 2023, the Company submitted an application to Companies House to
strike off iTrinegy Ltd, a 100% owned subsidiary of Calnex Solutions plc. This
will finalise the post-acquisition hive up of the iTrinegy entity, with all
trade and operations having been transferred to Calnex Solutions plc in the
prior financial year.
The first Gazette notice was issued on the 17(th) October 2023, and
expectation is the strike off will complete in the current financial year.
22. Alternative performance measures ('APMs')
The performance of the Group is assessed using a variety of performance
measures, including APMs which are presented to provide users with additional
financial information that is regularly reviewed by the Board of Directors.
These APMs are not defined under IFRS and therefore may not be directly
comparable with similarly identified measures used by other companies.
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Underlying EBITDA (411) 3,466 7,980
Underlying EBITDA % (5%) 27% 29%
Capitalised R&D spend 2,554 2,247 4,523
· Underlying EBITDA: EBITDA including R&D amortisation.
Reconciliation of statutory figures to alternative performance measures -
Income Statement
6 months to 6 months to Year ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000 £'000 £'000
Revenue 7,847 12,728 27,449
Cost of sales (2,011) (3,111) (6,977)
Gross profit 5,836 9,617 20,472
Other income 111 150 751
Administrative expenses (excl depreciation and amortisation) (4,542) (4,691) (9,928)
EBITDA 1,405 5,076 11,295
Amortisation of development costs (1,816) (1,610) (3,315)
Underlying EBITDA (411) 3,466 7,980
Other depreciation and amortisation (347) (368) (746)
Operating (loss)/ profit (758) 3,098 7,234
Finance costs (11) (12) (26)
Interest received 170 - -
(Loss)/profit before tax (599) 3,086 7,208
Tax 223 (656) (1,297)
(Loss)/profit for the year (376) 2,430 5,911
23. Availability of Interim Report
The Company's Interim Report for the six months ended 30 September 2023 will
be available to view on the Company's website https://investors.calnexsol.com.
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